School Choice & Charters

Ohio Judge Orders Disclosure of Charter Manager’s Records

By Sean Cavanagh — February 10, 2012 3 min read
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An Ohio judge has ordered a for-profit charter school company to turn over a wide range of financial documents to a group of schools it operates, ruling that “public money must be accounted for.”

A collection of schools in the Cleveland and Akron area and their governing boards have been seeking to have the company, White Hat Management, turn over records pertaining to the management of those schools.

The schools are currently under contracts that require them to pay 96 percent of their state funding and 100 percent of federal money to White Hat, as the order explains. The company has fought the schools’ request for more information about its finances, arguing that the public funds the schools receive from the state are no longer public after they’ve been paid to White Hat as “monthly continuing fee,” according to the court document.

White Hat Management also has argued that because Ohio’s state auditor has not found anything improper in the company’s finances for the schools, it should not be compelled to produce more detailed information than it already has.

But Franklin County Judge John F. Bender did not buy White Hat’s rationale.

Citing Ohio law, he said that even though White Hat and its associated school operators are private corporate entities, they are also “public officials,” in that they have received public money and been authorized to operate public schools.

“A management company operates a community school under contract from its governing board, pursuant to a grant of authority from the legislature,” Judge Bender ruled. “The money a management company is paid to operate a community school ... is public money.”

The judge’s order noted that a White Hat official had testified that the company had created a limited liability company as an education management organization, or EMO, at each school.

The official’s testimony suggested that White Hat paid public money to at least some other corporate entities for school expenses, such as rent and other services, the court order states. Some of those entities “may be affiliated with White Hat defendants, or that principals or offices of some or all of the White Hat defendants may have a financial interest in them,” Judge Bender wrote.

He ordered White Hat to provide school officials with ledger accounts that describe transactions between each EMO and any company affiliates, subsidiaries, or related entities; building lease information; purchases made for each of the schools in the lawsuit; and tax returns (to be viewed only by lawyers in the case), among other documents.

Many of the schools that are plaintiffs in the lawsuit have struggled academically, and a few of them have closed, said James D. Colner, a lawyer representing them.

The schools are seeking to determine whether public money is “being spent in the best interest of the children,” Colner said in an interview.

While he believes the case will be appealed, he called it a “groundbreaking decision,” which could serve as a model for similiar challenges in other states.

[UPDATE (Feb. 13): Charles R. Saxbe, a lawyer representing White Hat, confirmed that the company plans to appeal the judge’s order, which he described as using “tortured reasoning.”

“We are very disappointed with the judge’s decision,” Saxbe said. “White Hat has complied with what the statute requires and with what the contract with the schools requires.”

Saxbe said Judge Bender’s decision had the effect of placing “unlimited disclosure requirements” on the company and other private entities operating schools.

He also said there was nothing unusual about White Hat paying other entities, which may be affiliated with company officials, for rent and other services. “In order for it to operate, it needs facilities,” which have to be purchased or leased, Saxbe said. “There’s no mystery about having to acquire facilities to operate these schools.”]

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A version of this news article first appeared in the State EdWatch blog.